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Thread: The Cognitive Biases That Lead to Bad Money Decisions

  1. #1
    Craftsman Frakius's Avatar
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    The Cognitive Biases That Lead to Bad Money Decisions

    Interesting article, I wonder where spending large amount of money on a watch fits in? Some sort of Bandwagon effect? initially a watch that costs say over £1k seems absurd when you can buy a good casio/seiko/timex for under £100 then you spend time on forums, read watch blogs, see other people spending large amounts of money on them and suddenly £2k seems good value when a Rolex, Patek, etc cost a lot more!

    http://twocents.lifehacker.com/the-c...ons-1777406419

  2. #2
    Master
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    Really interesting- thanks for sharing.

  3. #3
    Craftsman Frakius's Avatar
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    I found this one creeping into my watch buying thinking too

    "Choice-Supportive Bias

    Buyer’s remorse usually starts with denial, also known as post-purchase rationalization, a form of choice-supportive bias. It’s the tendency to ignore other views in order to protect a decision you’ve already made.

    This happened to me recently. I overspent on a wedding dress I couldn’t afford, and while I eventually returned it, I initially convinced myself it was a good decision. It’s a big, important day, I told myself. I’ll have this dress forever. I didn’t want to admit I’d blown my budget."

    Change Wedding dress for watch, I'll have this watch forever pass it down etc etc it's a one off thing....But ultimately is it sound investment? Probably not?

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    Master
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    I'm a fully paid up member of this club!

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  5. #5

    Thinking fast and slow

    If you have the time try Daniel Kahneman's thinking fast and slow, an excellent read on cognitive biases.

  6. #6
    Craftsman Frakius's Avatar
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    Quote Originally Posted by ernestrome View Post
    If you have the time try Daniel Kahneman's thinking fast and slow, an excellent read on cognitive biases.
    I'll look it up thanks.

  7. #7
    I dare anyone to post this on Watch Talk!

    Many Thanks.

  8. #8
    It is an interesting subject- for example they "con" new executives with share options as they believe they are so much better than the board members they are replacing.

  9. #9
    I think the bias that is strongest in watch buying is the Contrast Effect. I think you look for certain features, find them in a watch and then identify another watch with a slight difference and evaluate based on that difference to the previous. Eventually you pull the trigger on your ideal watch but it is likely just a series of contrasts that have built up until you've run out of options.

  10. #10
    Grand Master
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    Very interesting, nice to see the psychology of shopping analysed this way.

    Does it affect me?...........I think not, but it probably did at certain points in the past. Nowadays I only buy stuff I really want and only if I can afford it . Most marketting isn't aimed at men in my age group (late 50s), probably because we've got more sense than to buy stuff we don't need.

    Paul

  11. #11
    Grand Master
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    Quote Originally Posted by walkerwek1958 View Post
    Very interesting, nice to see the psychology of shopping analysed this way.

    Does it affect me?...........I think not, but it probably did at certain points in the past. Nowadays I only buy stuff I really want and only if I can afford it . Most marketting isn't aimed at men in my age group (late 50s), probably because we've got more sense than to buy stuff we don't need.

    When it comes to buying new watches it's 95+% brand/image. OK, most people don' t buy a watch if they don't like the look of it, but some do.That's why folks walk around wearing a watch thst's way too big for them. It' s irrational to base a watch purchase decision on features/capability,or technical spec, this approach works with TVs and cars, but it falls down badly with watch choice. Applying rational criteria would result in buying cheap watches such as Seikos or G shocks, no-one would buy a Rolex Sub!

    Paul

  12. #12
    Master Alansmithee's Avatar
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    You see it in all sorts of way - I see the Bandwagon effect all of the time - I'm a high earner and live in a high income household yet we don't own a car and have never owned a car. People spend a lot of time trying to convince us that we must need a car and its simply unheard of not to have one.

    (The other side-effect of this is that often delivery drivers will not even knock because if there are no cars on the drive then it must be all the adults in the house are out).

  13. #13
    I actually think a lot of stuff on biases is not applicable to people who spend huge amounts of time thinking about watches. A lot of stuff about biases is how we make snap judgements because we are lazy. See Kahneman etc. Simply researching and checking with others on this forum prevents bias.

    There are also longer held biases, which often then rely on confirmation bias to sustain. Eg. If you don't like x political party you will see everything they do as bad. But again, I think watch enthusiaats do well in avoiding this. Probably because if you can afford several watches there's no need to get tribal. You can't support two opposing political beliefs at the same time without cognitive dissonance.

    What I think there is though, is preferences for brands etc which are somewhat irrational and probably influenced by moments in our lives eg. My appreciation of my rolex is based in large part on growing up thinking Rolex was the ultimate watch brand. Which was not based on any rational evaluation really. (Although I could have gotten to the right answer by luck). However, once you get to this level, is it really bias? It is more who we are? And if there's never going to be buyer's remorse what does it matter if there is irrational bias? Who says what is rational apart from ourselves anyway?

    But in summary, people on this forum go out of their way to challenge bias imo. Which is also simply nice to see because it shows tolerance and willingness to listen and change opinions

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